Townsquare Media, Inc. quarterly report, Q1 FY2016

Townsquare Media, Inc. — Q1 2016 Form 10-Q

Business context and reporting period. Unaudited results for the three months ended March 31, 2016, compared with Q1 2015. Townsquare operates local radio and digital advertising, live events, and national digital and marketing businesses. It reported 309 radio stations, more than 325 local websites, and operations in 66 U.S. markets. NAME, acquired in September 2015, expanded its live-events business.

Key financial results

Metric	Q1 2015	Q1 2016
Revenue	$81.1 million	$94.4 million
Operating income	$10.8 million	$5.8 million
Operating margin	13.4%	6.1%
Net income (loss)	$0.1 million	$(1.4) million
Net cash from operations	$20.0 million	$3.9 million

• Revenue increased 16.4%; management attributed $6.4 million of the increase to NAME and $6.9 million to organic growth.
• By segment, Local Advertising revenue rose 4.4% to $67.9 million; Live Events revenue rose 90.4% to $15.5 million, including NAME; and Other Media and Entertainment revenue rose 38.9% to $11.0 million.
• Direct operating expenses grew 25.4% to $76.9 million, faster than revenue. Live Events direct expenses increased 148.1%, largely reflecting NAME. Depreciation and amortization rose 66.8% to $6.1 million.
• Net interest expense declined 18.9% to $8.6 million, primarily following the April 2015 refinancing. The company recorded a $0.9 million income-tax benefit in Q1 2016.
• Operating cash flow fell to $3.9 million from $20.0 million. Investing used $5.2 million, including $6.5 million of capital expenditures; financing used $0.7 million. Cash decreased $2.5 million to $30.8 million.

Debt, liquidity, and balance sheet

• At March 31, 2016, debt carrying value was $588.5 million, net of $9.6 million in deferred financing costs; debt before those costs was $598.1 million. Cash was $30.8 million.
• The debt comprised $299.3 million of 6.5% senior notes due 2023 and $298.5 million of term loans, bearing 4.25% at period-end. The $50 million revolving facility was undrawn.
• Management estimated debt service of approximately $32.4 million over the next 12 months and stated it expected cash, operating cash flow, and revolver availability to meet near-term needs. The company reported compliance with debt covenants.
• Current assets were $100.9 million and current liabilities were $62.7 million. The company had $52.4 million of receivables; its stated historical collection cycle was about 50 days.

Changes, outlook, and risks

• On a pro forma basis reflecting NAME and the tower sale, revenue increased 6.7% to $94.4 million. Local Advertising grew 4.4%, Other Media and Entertainment grew 45.3%, and Live Events declined 2.2%; management said some events shifted from Q1 2015 to Q2 2016. The filing’s pro forma presentation reports prior-period revenue of $88.5 million; another acquisition pro forma disclosure gives $88.9 million, so the difference is not clearly reconciled in the filing text.
• No specific full-year revenue or earnings guidance is provided. Management expects Q1 to be the lowest-revenue quarter, with Q2 and Q3 generally higher; live events and NAME are particularly seasonal, with NAME revenue concentrated in Q3. Political advertising may boost even-year results, typically most in Q4.
• Risks include advertising sensitivity to economic and industry conditions, competitive shifts in audience and advertising toward digital/mobile media, live-event weather disruptions, Canadian-dollar translation exposure, and floating-rate debt. A 1 percentage-point increase in LIBOR was estimated to raise annual interest expense by about $1.3 million.
• Unusual items include the 2015 NAME acquisition, $0.4 million of Q1 2016 gain on asset sales (primarily a tower-sale earnout), and $0.7 million face value of 2023 notes repurchased at 95% of par, producing a $34,000 gain. Q1 operating cash flow was also affected by working-capital timing and higher prepaid event expenses.
• The company reported no material off-balance-sheet arrangements and said ordinary-course legal matters were not expected to materially adversely affect its financial position, results, or cash flows. Disclosure controls were assessed as effective.

Important facts for investors to verify

• Whether revenue and segment growth translate into improved profitability, given the sharp decline in operating margin and the Q1 net loss.
• The sustainability and timing of operating cash flow, including seasonal working-capital needs and live-event prepayments.
• Debt service capacity, covenant headroom, floating-rate exposure, and the availability of the undrawn revolver.
• The pro forma revenue discrepancy in the filing and the extent to which reported growth reflects acquisition effects versus underlying performance.
• Potential dilution: 9.5 million warrants were reported outstanding at March 31, 2016, alongside substantial outstanding stock options; warrant exercises and share counts should be checked against subsequent disclosures.
• Exposure to event cancellations or weather, political-advertising variability, and currency movements in NAME’s Canadian operations.